Friday, January 2, 2009

It's not just married couples who are 'punished by tax system'

Does it really need an 'influential think tank' to state the 'bleeding obvious'? Sadly the answer is 'yes' as the media feed off such reports. As a result more MPs are likely to become aware of the issues and there is a greater chance that changes will follow. Not a big chance - but greater than there was before the report has been publicised.

Today we have the report Individualists Who Co-operate, published by Civitas. The Daily Telegraph leads with just one key element of the report: Married couples 'punished by tax system'.

In fact the system doesn't just punish married couples, it punishes people who live together - married or not. And, as I have explained on this blog before, a BIG part of the problem is that the Tax Credits System is NOT fit for purpose. The Civitas report makes two related points:
  • Working tax credits encourage part-time work instead of full-time work;
  • The system penalises the formation of couples - some parents can be over 20% worse off if they live together.
Before Christmas I was listening to various commercial radio stations and couldn't escape the repeated adverts about tax credits (which replaced many of the old social security benefits some years back). This campaign seemed even more insidious than in previous years. One of the ads sought to encourage tax credit claimants to tell HMRC if their relationship status had changed and if they had moved in together. In effect, "If you now live together your tax credits will be cut so do tell us so that we don't overpay you and have to claim it back later."

The more the media give credence to reports that tax is an issue to consider when getting married the more accountants will need to be familiar with ALL of the related tax issues. In this context I have said before on this blog that More and more accountants will find themselves having to advise on tax credits. And although their motivation for doing so will be to assist clients in securing the levels of tax credits to which they are 'entitled', it could also lead to them being asked about the impact on tax credits claims if a couple marry.
The answer is simple. Marriage isn't a relevant factor - entitlement to tax credits is determined by household income levels regardless of whether or not the couple are single, married or in a formal civil partnership. It's living together that can reduce your entitlement. Who said "Families are very important. They stand for social cohesion, as against the breakdown of society."

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1 comment:

  1. I know I am not an accountant but do we really learn anything from the report Individualists Who Co-operate, published by Civitas. Wasn't it inevitable that the average household paid in as much in taxes etc as the average household got in benefits. Stats and other stats can mean anything